All posts tagged European monetary union

Like Comical Ali–Saddam’s propaganda chief–telling journalists that there were no U.S. troops in Baghdad, while the cameras filmed the tanks rolling behind him, the French prime minister told the world Thursday that the euro “is undisputedly a solid currency” and that the current crisis “is not a crisis of the euro zone.”

Seriously, you couldn’t make this up.

EPA

Francois Fillon, the French prime minister

There’s a kernel of truth to what Francois Fillon said. The problem with some of the now 17 euro members is not the fact that they share a currency. It’s that they borrowed and spent beyond their means, leading to bailouts for Greece, then Ireland, and soon enough, doomsayers insist, Portugal. Worst case scenario: Spain is next, and the system can’t afford to prop it up. (In fact, there’s an even worse outcome than that, which is the vague but worrying risk that supposedly solid euro members like Belgium and France are in trouble too.)

But clearly, the structure of the euro was just too weak to stop the crisis. And when the debt mess did blow up, the European Union was like a rabbit in the headlights, lacking the single authority needed to sort it out.

Potash has rejected BHP Billiton’s $38.6 billion bear-hug letter and it has done so by adopting a poison pill and coming out full force in its press release against BHP Billiton’s approach. Yet if BHP Billiton persists, Potash may find itself with dwindling options because of Canadian restrictions on defensive maneuvers in hostile takeovers.

The problems facing the PIGS are very different from those which faced Latin American economies in the 1980s. The debt/GDP ratios are much, much bigger, for starters. And none of them can do an Uruguay-style restructuring-while-current, for the good reason that none of them have performing debt trading at 50 cents on the dollar.
But Carlos reckons that some kind of European Brady plan makes sense — he calls it the Trichet plan.

The big picture is that the Irish debt crisis has put the banks into lines of business that they never planned to be in. With the result that significant sectors of the Irish domestic economy are now being run by them. But there is a strange flip side to this situation.

China’s remarkable growth is as apparent in beer consumption as it is in more formal economic indicators. In the space of a couple of decades the country has gone from barely touching a drop to become the world’s biggest beer market.

The Emerald Isle has been in the firing line of late, dubbed “the new Greece” by Citigroup earlier this week as the cost of insuring its debt against default crept worryingly high amid concerns over the solvency of its banks. Its risk of default is nowhere near as high as Greece’s was earlier this year, but Citi’s point was that rising default-insurance costs for Ireland were dragging costs up for other shaky euro states, too, in a flashback to May’s grim bout of contagion.

As investors mull the likelihood of the euro zone’s solid ‘core’ charging to the rescue of its tottering ‘periphery,’ this is an apposite question to ask. For all the chatter on the subject, numbers remain sparse. However, analysts at BNP Paribas have been doing their bit to change this. Looking at packages extended to Hungary, Romania and Latvia in recent times, they suggest 20% of the country-in-question’s GDP would be about right.

To have any chance of succeeding, a bailout plan must be big enough to buy battered governments breathing space in which to get a firm grip on their troubles. It must also scare off the speculative community’s vultures from circling overhead. If it’s too small to do that they’ll just get bolder and think dinner is served.

According to BNP’s rule, a bailout of Greece would cost EUR50 billion. Then there’s Spain which would need a EUR200 billion lifeline, Portugal EUR30 billion and so on, until you end up with a total of EUR320 billion for the lot. That would be just over 3% of the currency bloc’s total GDP firepower. Obviously, that’s a big pile of cash. But maybe its a small price to pay for the future of European monetary union, if you like that sort of thing…